Gindalbie circles key WA port

Chinese-backed iron ore miner
­Gindalbie Metals
is poised to swoop on the embattled Oakajee port and rail project in Western Australia, after it quietly began pegging out an alternative rail corridor to the port from its mine in the state’s mid-west.

Gindalbie’s manoeuvring comes six weeks before the expiry of an exclusive agreement to build the troubled $6 ­billion port and rail development, which is backed with $680 million in funding from the state and federal ­governments.

That agreement is currently held by WA miner
Murchison Metals
and its Japanese joint-venture partner Mitsubishi, which are struggling to ­complete financing for the Oakajee project amid cost blowouts. They won the right to build the port in a 2008 ­tender run by the previous state government that pitted Japan against Chinese companies.

On a visit to Perth in 2007 Chinese President
Hu Jintao
unsuccessfully lobbied the WA Labor government for China to be awarded the project. But China is now viewed as the saviour of the Oakajee project thanks to its deep pockets and interest in three major mines in the region, including the ­Ansteel-backed Gindalbie.

The turmoil forced West Australian Premier
Colin Barnett
to travel to ­Beijing recently to soothe anger in China at its initial snub.

On Tuesday Mr Barnett said he was optimistic that the project would go ahead, but that he expected China to play “hardball". “I believe they’re going to take a fairly hardball position and I can understand that," he said. “The ­Chinese are not simply going to turn up with a truckload of money and say ‘off you go’."

While the government works on a formal way to include China in the project, over the past month Gindalbie has used provisions in the West Australian mining act to secure land on which it could build a spur rail line to Oakajee from its existing railway between its Karara mine and the at­capacity Geraldton port.

A Gindalbie spokesman confirmed the move yesterday and said it was to ensure the company had “maximum flexibility" to develop its mine.

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“We are looking at all the options available to expand our mine," he said. “As part of that process we have secured some tenure over land [for a railway] to give us those options."

It comes as Gindalbie completed an agreement with QR National yesterday to transport 10 million tonnes of iron ore a year from its Karara mine by existing rail to the Geraldton port, by the end of next year.

Any expansion of Gindalbie’s ­operations would require the use of Oakajee, which will initially be able to export 45 million tonnes of ore. Oakajee was originally to have been shipping iron ore by next year, but this will now be 2015 at the earliest.

Murchison and Mitsubishi’s ­holding vehicle that is securing approvals for the Oakajee project, Oakajee Port and Rail (OPR), says it is on track to win all necessary licences by the December 31 exclusivity expiry deadline. But Murchison has admitted it won’t have the money for its share of the project, and is currently under­taking a “strategic review".

Although Mitsubishi says it is ­committed to the Oakajee project, industry analysts wonder whether it is looking for a way to exit the venture given concerns that it is struggling to make the economics of its associated Jack Hills mine stack up.

It was to be a foundation customer of the port, but Sinosteel and Gin­dalbie have expressed concern that proposed high tariffs they were being charged to use OPR’s rail were to subsidise the expensive Jack Hills mine.

Mr Barnett said he would prefer Chinese companies as equity participants in a restructured Oakajee project, including possible delays to some of the rail lines leading into the port.

“There is merit for looking at the project being staged," he said on ­Tuesday. “You don’t need to develop all of the railways, all of the mines, at one point."

This may be behind Gindalbie’s ­thinking. Its current railway line to Geraldton is a much cheaper, but lower capacity, line than that planned by OPR.

However if it, or more likely ­Ansteel, is able to secure an equity stake in the Oakajee port after ­December 31, and then quickly win approvals to build a cheaper rail line to the port, it would have the jump on its rivals and be in pole position for a possibly expanded capacity at the ­harbour.

The state’s opposition transport spokesman,
Ken Travers
, said Mr Barnett had played a major part in the ­current turmoil.

Mr Travers said the Premier had, without going back to the market, restructured the initial winning tender to include not just the port, but to give Mitsubishi and Murchison an exclusive right to build the rail.

“Giving an exclusive right to the rail to operate into a port without going to public tender, that was a decision of Barnett and Barnett alone," Mr Travers said.

“That is the thing that has caused the biggest problem in terms of getting this deal up and running, because it removed the commercial friction from the process that would have forced the different companies to negotiate a better rate [on rail] or come up with their own proposal."

In June Gindalbie tapped shareolders for about $200 million in additional equity to cover the increased cost of building its Karara magnetite iron ore project.

Stage one of Karara is slated to cost $2.57 billion, up from the $1.97 billion estimate provided in May last year.

Gindalbie’s deal with QR that was announced yesterday will provide the miner with a fleet of new locomotives and wagons and upgraded administration and maintenance facilities at the Narngulu East facility near Geraldton.